Right Attitudes

Yesterday, eBay [EBAY] and Yahoo! [YHOO] announced a long-term alliance in four areas: (1) search and advertising, (2) integrated online payments using eBay’s PayPal, (3) a co-branded toolbar for browsers, and, (4) developing “click-to-call” advertising functionalities. This move was inline with speculations made by a much-cited JPMorgan research report released earlier this week.

Clearly, this tie-up has a win-win potential for both eBay and Yahoo!. However, I wonder if this is a half-baked deal.

• eBay’s primary business stream is auctions. Here, I see plenty of opportunities to consolidate and leverage each other’s strengths: in Japan, where eBay is absent, and in Europe, where Yahoo! is weaker. eBay (through EachNet) and Yahoo! (through Alibaba-Taobao) fiercely compete in the China auctions market. A consolidation will clearly lead to a market leadership in China.
• The payments deal expands the reach of the PayPal payment service and prepares eBay for a competition with Google Payments. However, this payment service can to be expanded beyond the United States. Again, PayPal competes with Yahoo! and Alibaba’s AliPay payment system in China.
• The third eBay business stream is the Skype communication suite. Consolidation of Skype with Yahoo! Messenger can create opportunities for a broader customer base, efficiencies and consolidation of development efforts.
• The search and advertising deal can be expanded to other markets outside of the United States.

Yahoo! and eBay offer largely complementary services in most markets. I speculate that Yahoo! and eBay will eventually merge by taking the above initiatives and create a stronger global e-commerce leader.

Last week, as part of its reporting on the debate on immigration legislation and Mexican President Vicente Fox’s visit to the USA, the San Francisco Chronicle pointed out to estimates that “roughly 10 percent of Mexico’s population of about 107 million is now living in the United States.” Clearly, there aren’t enough appealing jobs in Mexico to contain this emigration.

Over the last two decades, the economy of Mexico became increasingly dependent on that of the United States, especially since the free trade agreement (NAFTA) came into effect in 1994. Given its proximity to USA, the northern region of Mexico became a huge manufacturing base, exporting a substantial portion of output to the USA.

The slowdown in the US economy between 2000 and 2003 coupled with the relocation of labour-intensive industries to China and the attractiveness of Asia as a recipient of foreign investments had a significant impact on the Mexican industry.

Mexico is expected to have a general election within a few weeks. The new government can embrace liberalization by focusing on improving the country’s infrastructure and education and by providing incentives for growth and investments across Mexico.

As Newsweek points out, Mexico can explore its geographic advantage to attract industries that need quicker responses and industries where transportation costs on bulky products can cancel out relatively lower production costs in Asia. The government can explore additional export destinations in Europe and South America.

Further, American corporations are focused largely on the booming the consumer markets in India, China and elsewhere in Asia. Appropriate incentives and an improved economy can attract attention to the consumer market in Mexico. The resulting surge in industry and domestic economy could easily contain this emigration.